Commissioner of Income Tax vs Dhampur Sugar Mills Co. Ltd.

R.K. Agarwal, J.—The Income Tax Appellate Tribunal, New Delhi, has referred the following question of law u/s 256(1) of the Income Tax Act, 1961, hereinafter referred to as "the Act", for the opinion of this court:

"1, Whether, on the facts and in the circumstances of the case, the order of the Commissioner of Income Tax u/s 263 is valid in law ?"

The present reference relates to the assessment year 1976-77. The respondent assessee is a limited company carrying on the business of manufacture and sale of sugar. In submitting a return for the assessment year in question it had claimed deduction of gratuity of Rs, 74,287, The assessing authority referred the matter u/s 144B of the Act with regard to the allowability to the Assistant Commissioner. The Inspecting Assistant Commissioner, having considered the matter directed allowance of the amount as claimed by it. The assessing authority consequently allowed the amount of Rs. 74,287 vide order dated February 6, 1980.

The Commissioner of Income Tax on examination of the records felt that the order passed by the assessing authority is erroneous and prejudicial to the interests of the Revenue. He, therefore, exercised his power u/s 263A of the Act. After hearing the respondent-assessee the Commissioner of Income Tax disallowed the amount of gratuity by holding that the said amount fell in the previous year relevant to the assessment year 1977-78 and not the assessment year 1976-77 which is under consideration. The respondent-assessee preferred an appeal before the Tribunal. Before the Tribunal the order u/s 263 passed by the Commissioner of Income Tax was challenged on the ground that the assessment order dated February 6, 1980, was the subject matter of proceeding u/s 144B of the Act and the order of assessment had been passed by the Income Tax Officer in accordance with the direction issued by the Inspecting Assistant Commissioner, and as such ^ the order is not amenable to revisional jurisdiction of the Commissioner, The other ground of challenge was that there had been an appeal before the Commissioner (Appeals) against the assessment order and, therefore the order of the Income Tax Officer had merged with that of the Commissioner (Appeals) order dated January 23,1981, and therefore the Commissioner could not have revised the order of assessment. The Tribunal by following its earlier Full Bench decision in the case of East Coast Marine Products Pvt. Ltd. v. ITO 3 ITD 73 upheld the objection raised by the respondent-assessee. It had held that any order passed in pursuance to the direction issued by the Inspecting Assistant Commissioner, u/s 144B of the Act is not open to revision u/s 263 of the Act. The other ground of challenge had also been accepted by the Tribunal by following the decision of this court in the case of J.K. Synthetics Ltd. Vs. Additional Commissioner of Income Tax and Another, .

We have heard Shri Dhananjai Awasthi, learned counsel for the Revenue, and Sri R. R. Agrawal, learned counsel appearing for the respondent-assessee.

Learned counsel for the Revenue submitted that section 263 had undergone a change and now in view of the amendment made in clauses (a) and (c) of Explanation to section 263 by the Finance Act, 1989, with effect from June 1, 1988, the Commissioner could have revised an order of assessment made by the Income Tax Officer on the basis of the direction issued by the Inspecting Assistant Commissioner, as also where any order has been the subject matter of appeal to such matters as had not been considered and decided in that appeal. He submitted that the amendment made in clauses (a) and (c) with effect from June 1,1988, "to the following effect" on or before or after the 1st day of June, 1988" has been considered by the apex court in the case of COMMISSIONER OF Income Tax Vs. SHRI ARBUDA MILLS LTD., and Commissioner of Income Tax, Kohlapur Vs. Jaykumar B. Patil, and the apex court has held that the Commissioner has the power to revise an order which have been passed on or before June 1,1988, in respect of the assessment order passed in pursuant of the direction issued by the Inspecting Assistant Commissioner u/s 144B of the Act and also in respect of that part of the order which had not been the subject-matter of appeal. Shri R. R. Agrawal, learned counsel submitted that the Central Board of Direct Taxes had issued a Circular (Instruction No. 1979 : F. No. 279/126/98-ITJ dated March 27, 2000) by which a decision has been communicated that appeal u/s 260A/reference u/s 256(2) before the High Court should not be filed where the amount of tax involved is less than Rs. 2 lakhs. He submitted that the aforesaid circular is binding upon the authorities and applies to all pending proceedings. He referred to the following decisions :

Mathew M. Thomas and Ors Vs. Commissioner of Income Tax, ;

Commissioner of Customs, Calcutta Vs. Indian Oil Corporation Ltd. and Another, ;

Commissioner of Income Tax Vs. Camco Colour Co., .

Having heard learned counsel for the parties we find that the apex court in the case of COMMISSIONER OF Income Tax Vs. SHRI ARBUDA MILLS LTD., , while considering the amendment made in section 263 of the Act by the Finance Act, 1989, with retrospective effect from June 1, 1988, has held as follows (page 52) :

"The consequence of the said amendment made with retrospective effect is that the powers u/s 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner u/s 263 shall extent and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee. This is sufficient to answer the question which has been referred,"

Before the apex court, the following question of law came up for consideration (page 51) :

"Whether, on the facts and in the circumstances of the case, the order of assessment passed by the Income Tax Officer u/s 143(3) read with section 144B on July 31, 1978, had merged with that of the Commissioner (Appeals) dated December 15, 1979, in respect of the three items in dispute so as to exclude the jurisdiction of the Commissioner of Income Tax u/s 263 ?"

The apex court has answered the aforementioned question of law in the negative, i.e., in favour of the Revenue and against the assessee.

In the case of Commissioner of Income Tax, Kohlapur Vs. Jaykumar B. Patil, , the apex court had followed its earlier decision in the case of COMMISSIONER OF Income Tax Vs. SHRI ARBUDA MILLS LTD., and answered the following questions of law in favour of the Revenue (page 470) :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law, in holding that the Commissioner of Income Tax had no jurisdiction and powers to initiate proceedings u/s 263 of the Income Tax Act, 1961, in respect of issues not touched by the Commissioner of Income Tax (Appeals) in his appellate order ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that not only the issues dealt with in the assessment order but also the other issues were merged in the Commissioner of Income Tax (Appeals)''s order ignoring the provisions contained in clause (c) of Explanation to sub-section (1) of section 263 of the Income Tax Act, 1961 ?"

In the case of T.N. Civil Supplies Corporation Ltd. Vs. Commissioner of Income Tax, , the apex court has held that having regard to the subsequent amendment to the Act from time to time there is no escape for limiting the order passed by the Income Tax Officer in section 263 to exclude the order passed by the Income Tax Officer on the direction of a superior authority either u/s 144A or u/s 144B. Similar view has been taken by the Gujarat High Court in the case of Commissioner of Income Tax Vs. Mehsana District Co-operative Milk Producers Union Ltd., . This court in the case of Commissioner of Income Tax Vs. Span International, has held that in view of the amendment made in clauses (a) and (c) of the Explanation to section 263 as interpreted by the apex court in the case of COMMISSIONER OF Income Tax Vs. SHRI ARBUDA MILLS LTD., that part of the order of the Income Tax Officer in so far as it has not been challenged in appeal did not merge in the order of the Commissioner (Appeals) and the Commissioner of Income Tax had jurisdiction to revise that order.

Now coming to the question as to whether in view of the circular issued by the Central Board of Direct Taxes directing the Income Tax Department not to file appeal u/s 260A/references u/s 256(2) before the High Court involving tax of not more than Rs, 2 lakhs is concerned, it may be mentioned here that there cannot be any dispute that the circulars issued by the Central Board of Direct Taxes are binding upon the Income Tax Department as held by the apex court in the cases of Mathew M. Thomas and Ors Vs. Commissioner of Income Tax, and Commissioner of Customs, Calcutta Vs. Indian Oil Corporation Ltd. and Another, . However, it is for the court to permit withdrawal of pending references. The question of law has been referred for the opinion to this court and in the absence of any request or application having been made by the party at whose instance the reference has been made, neither it would be appropriate nor proper for the court to decline to give its opinion. Thus, the submission of learned counsel for the assessee that the court should decline to answer the question of law referred to it cannot be accepted.

In view of the foregoing discussion, we answer the aforementioned question of law in the negative, i.e., in favour of the Revenue and against the asses-see. However, there shall be no order as to costs.